Operating Budgets

Form Revised: February 2005 TORONTO TRANSIT COMMISSION REPORT NO. MEETING DATE: September 16, 2011 SUBJECT: AMENDED 2012 TTC AND WHEEL-TRANS OPERATING BUDGETS ACTION ITEM: REASON FOR CONFIDENTIAL INFORMATION: This report contains information about labour relations or employee negotiations RECOMMENDATIONS It is recommended that the Commission: 1) Approve the amended 2012 TTC and Wheel-Trans Operating Budgets as outlined in this report, noting that: • The $85 and $16 million shortfalls (a total of $101 million) included in the preliminary 2012 TTC and Wheel-Trans Operating budgets respectively, have been reduced significantly to $21 and $8 million (a total of $29 million) through a series of measures including expenditure reductions, staff reductions and, adjustments to service loading standards; • Subject to further budget discussions and a review of all core, efficiency and user fee recommendations, staff recommend Commission support, in principle, for a 10 cent fare increase, which if implemented January 1, 2012, would generate approximately $30 million in 2012 to address the remaining shortfall, noting that the formal recommendation on a fare increase will be presented to the Commission in December following the results of the City’s Core Service and Service Efficiency Reviews; • Staff has commenced activity to pursue contracting out opportunities; 2) Approve the recommendations contained in the confidential attachment, noting that this information will remain confidential until such time as all the recommendations and related matters are completed to the satisfaction of the TTC General Counsel; 3) Approve the development of a multi-year fare, service, subsidy strategy in conjunction with the City of Toronto, taking into consideration appropriate targets for ridership levels, service initiatives and revenue/cost ratios; AMENDED 2012 TTC AND WHEEL-TRANS OPERATING BUDGETS Page 2 4) Forward this report to the City of Toronto Budget Committee for confirmation of the 2012 Transit Operating subsidies for the TTC and Wheel-Trans; 5) Forward this report to the Ontario Minister of Transportation, the Ontario Minister of Energy and Infrastructure, and the Ontario Minister of Finance, for information; 6) Forward this report to the Federal Minister of Transport, Infrastructure and Communities, for information, and; 7) Forward this report to Metrolinx for information. BUDGET CONTEXT The City of Toronto is facing a $774 million operating budget pressure in 2012. To address this challenge, Council approved the implementation of a Service Review Program consisting of a Core Service Review, Service Efficiency Review and a Comprehensive User Fee Review. These reviews are expected to generate cost savings to help mitigate the 2012 operating pressure and, in the longer term, to contribute toward resolving the City’s deficit. It is anticipated that the results of the Service Review Program initiative will be known this Fall. Results are to be integrated into the 2012 Operating Budgets after Council decisions in September at which time final direction and guidelines will be provided. In the interim, TTC staff has continued to review and refine 2012 budget estimates and projections and to explore all possible mechanisms to eliminate the operating shortfalls identified in the preliminary budgets approved by the Commission on June 8, 2011. BUDGET HIGHLIGHTS Details of the preliminary 2012 TTC Operating Budget and preliminary 2012 Wheel-Trans Operating Budget are provided in the reports presented to and approved at the June 8, 2011 Commission meeting. These reports are attached as Appendix A and B to this report for reference purposes. The following table summarizes the key financial aspects of the preliminary budgets (all figures are in millions): (Millions) TTC WHEEL-TRANS Ridership 502 3.15 Expenditures $1,507 $103.6 Revenues 1,039 5.6 2011 Subsidy 429 91.1 Shortfall $39 $6.9 City Subsidy Reduction 46 9.1 Total Shortfall $85 $16.0 AMENDED 2012 TTC AND WHEEL-TRANS OPERATING BUDGETS Page 3 The preceding table shows that, after factoring in the projected City of Toronto operating subsidy for the TTC and Wheel-Trans, these budgets will have a shortfall of $85 million and $16 million, respectively. There are essentially three approaches available to address these shortfalls: (1) reduce expenditures, including determining the appropriate service level, (2) increase subsidies, and (3) increase fares. Since the approval of the budgets by the Commission in June, staff has continued to work on a shortfall reduction strategy. This included reviewing expenses and assessing how to be more efficient and contain costs. This challenge is greater than ever before as it is expected that ridership will be in excess of 500 million in 2012: the fifth consecutive year of record ridership levels. In fact, based on a more recent assessment of ridership trends, the ridership projection for 2012 has been increased to 503 million; however, as the majority of this increase relates to more trips by Metropass holders in the off-peak, there is no net increase in revenue. Ridership and passenger revenue estimates will be updated as additional TTC information and economic forecasts become available. Ridership is budgeted at an all-time record high of 503 million rides. This represents an increase of 16 million annual rides over the 2011 budget of 487 million. At a time of record ridership and ever-increasing demands for enhanced customer service, consideration for increasing resources to meet those needs would normally be given. However, when faced with a 10% reduction in subsidy for both the TTC and Wheel-Trans Operating Budgets, trade-offs have to be made. The following list of budget amendments includes items that otherwise might not be contemplated with the record ridership levels being carried by the TTC and Wheel-Trans plus items where estimates have been revised. Diesel Fuel: $15 million reduction As noted in the preliminary 2012 TTC Operating Budget approved by the Commission on June 8, 2011, the single largest increase in the expense budget was for diesel fuel. The preliminary budget was based on the City of Toronto’s budget guideline for a 35% price increase over the current average budgeted prices. After monitoring 2012 futures prices over the past several months, it is evident that these prices have fallen below the originally projected level and it is proposed that the 2012 budget requirement be reduced accordingly. Staff Reductions: $14 million reduction In addition to the 60 positions already reduced in the preliminary budget approved on June 8, 2011, a comprehensive review of all workforce positions has identified a further 152 positions, for a total of 212 reductions in the 2012 TTC Operating Budget, with associated labour and benefits expenses reductions in the order of $14 million in 2012 and $16 million on an annual basis. Additionally, 99 positions are proposed to be reduced in the Capital, Toronto Coach Terminal and Wheel-Trans budgets. Total workforce reductions amount to 311 positions. Further details are included in the associated Confidential Attachment. AMENDED 2012 TTC AND WHEEL-TRANS OPERATING BUDGETS Page 4 Reverse Ridership Growth Strategy (RGS) Peak and Off-Peak Loading Standard Improvements: $14 million reduction In an effort to reduce overall operating costs, staff is recommending the restoration of historical loading standards for surface vehicles for both peak and off-peak periods. 1. Return to Historical Loading Standards in Peak Periods (Rush hour) In 2008, peak-period crowding conditions on all major routes in the system were reduced by approximately 10% through the addition of 89 new peak-period buses. With this service improvement reversed, there will be more crowding and less- frequent service on approximately 50 routes in the system. This reduction in service quality will save $9.2-million in annual operating costs, with a forecast ridership loss of 1.9 million equating to a $3.7-million loss of fare revenue, resulting in a net operating saving of $5.5-million per year. This change will affect customers using the busiest rush hour routes. 2. Return to Historical Loading Standards in Off-Peak Times In 2004/2005, off-peak service on major routes was improved such that, on average, passengers would get a seat for their trip. The previous standard was that, on routes with service every 10-minutes or better, an average of 20% of passengers were required to stand. Reverting to this previous standard for all off- peak service will result in less-frequent service and more crowding on approximately 60 routes. This reduction in service quality will save $11.7-million in annual operating costs, with a forecast loss in ridership of 1.8 million equating to a $3.5- million loss of fare revenue, resulting in a net operating saving of $8.2-million per year. The change will affect customers using the busiest off-peak routes, at their busiest times. While this action is not preferred, it allows the existing network to be maintained in full (i.e. no routes are eliminated and hours of operation remain unchanged). The change in loading standards will save approximately $14 million annually on a net basis, and result in the elimination of 171 TTC Operating positions. Advertising Contract Revenues: $5 million increase The current multi-year advertising contract expires at the end of 2011. At the time that the preliminary budget was prepared, the tendering and procurement process for the next contract had not been completed and consequently, the preliminary budget reflected 2012 revenues flatlined to the 2011 budgeted level. At its meeting of July 6, the Commission awarded a 12-year contract which included increased revenues (relative to the 2011 budget) for 2012. AMENDED 2012 TTC AND WHEEL-TRANS OPERATING BUDGETS Page 5 Absenteeism and Overtime Requirements: $5 million reduction The Commission will continue with its Attendance Management Strategy which entails a systematic review of employee attendance files to identify non-compliance with the TTC’s At Work program and policies.

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